Dollar slips as market eyes Hurricane Rita

A dip in Treasury yields also played a role in shoving the dollar lower, since lower yields could deter foreign investors from buying dollar-denominated assets.

The drop in yields, particularly longer-dated ones, came as many believe that the Federal Reserve's 11th consecutive rate hike Tuesday, and its hint that there are more on the way, will keep inflation suppressed. The dollar's decline pushed the U.S. currency away from the six-week high it tapped versus the yen late Tuesday after the Fed raised rates.

There was little fresh economic data Wednesday and attention focussed on Hurricane Rita. With the storm strengthening into a category 4 hurricane and heading toward the U.S. Gulf Coast, some refineries and offshore platforms shut down, fueling a renewed rise in crude oil prices.

Houston, which is near the projected path of Rita, is home to 13 percent of U.S. refining capacity and the capital of the country's energy industry. The front-month crude contract closed Wednesday up 60 cents at $66.80 a barrel, after trading as high as $68.27 earlier in the session.

Finance ministers and central bankers from the Group of Seven leading industrialized nations will discuss ways to increase oil supply and conservation efforts at a meeting Friday, the U.S. Treasury's top international policy adviser said Wednesday. "Energy supply disruptions that raise prices put a damper on growth," the U.S.

Treasury Undersecretary for International Affairs Timothy Adams said in a statement. "I expect ministers and governors will discuss steps taken to address supply and efficiency issues, as well as technical measures such as the improvement of data availability."

Late afternoon, the euro was at $1.2216 from $1.2124 late Tuesday. The dollar was at 111.30 yen from Y111.90, and at 1.2707 Swiss francs from 1.2807. The pound was at $1.8088 from $1.7994, while the euro was fetching 135.97 yen from Y135.73. There are no major U.S. data Wednesday.

Analysts said that market fears about Rita had overshadowed Tuesday's dollar-bullish news that further Fed rate increases are likely. At issue is whether the fallout from the storm, combined with Hurricane Katrina's widespread destruction a few weeks ago, will have a more pronounced damping effect on economic growth or boosting effect on inflation.

"The Fed rate hike and statement has largely been digested by the market," said Jeff Young, currency strategist at Citigroup in New York.

"We have several stories that are very important right now - politics in Germany, spectacular equity performance in Japan, and the U.S. interest rate story," Young added. But he says that markets remain very cautious, which could be due to a belief that the dollar will start falling again later this year because of the large U.S. current account deficit, AP reports.